CLEARWATER — City officials were blindsided last week when they learned that Richard Zahn, until recently head of Prospect Real Estate Group, a firm picked to build a key project downtown, had pleaded guilty to corruption charges in South Carolina.
On Friday, as the Tampa Bay Times was preparing to report that Zahn's wife, Michele, remained a trustee of the firm, she resigned.
She was concerned that her presence would damage the firm's chance to build the high-end apartments and stores around downtown's Prospect Lake, a nearly 6-acre, city-owned parcel fronting on Cleveland Street, said Mark Filburn, Prospect's managing member.
Richard Zahn, who was also the former head of ZMG Construction, the contractor for the project, pleaded guilty to federal corruption charges in South Carolina in February in connection with a scheme to bribe South Carolina State University officials.
The revelation caught city officials and leaders by surprise and has left some elected officials questioning what might come next.
Mayor George Cretekos said he thinks Prospect, an Orlando-area firm, submitted "an excellent proposal," but he was surprised company officials hadn't told the city about Zahn's guilty plea during the selection process.
"It makes you wonder. Is there something else out there?" Cretekos said.
Prospect officials said they didn't inform the city because Richard Zahn, 45, severed all ties with ZMG and Prospect in December and they believed his legal troubles were widely known in the development community.
The city's request for proposals included a provision barring its Community Redevelopment Agency from awarding the project to any company that has "any person or affiliate" that has committed a public-entity crime.
By submitting its proposal, Prospect certified that it met that provision, said Pam Akin, the city attorney.
The City Council, meeting as the CRA, is expected to take up planners' recommendation that Prospect develop the property at its meeting Tuesday.
If approved, the city would begin negotiating a development agreement with Prospect, which plans to build 240 apartments and 15,000 square feet of retail space.
Richard Zahn contends he had nothing to do with the Prospect Lake proposal and doesn't plan to return to ZMG or Prospect in the future. He said he has executed a plea agreement with federal prosecutors for three years of probation in return for his cooperation in the case. That plea agreement doesn't restrict his business activities, he said.
At his sentencing, the judge could throw out the plea and sentence him to up to five years in prison.
"That's the reason I stepped aside, because I knew it would jeopardize the project," Zahn said.
Michele Zahn became concerned that inquiries into her role at Prospect was "becoming an issue and didn't want to be a distraction," Filburn said.
Filburn said Michele Zahn didn't have any power over the trust. Now, Filburn says, he is the sole power at Prospect.
"I am strictly and completely in control," Filburn said.
Times researcher Natalie Watson contributed to this report. Charlie Frago can be reached at email@example.com or (727) 445-4159. You can follow him on Twitter @CharlieFrago. To write a letter to the editor, go to tampabay.com/letters.